Statutory vehicle classification controls service tax liability; authorities must decide the issue on merits, not assumptions.

Service tax liability for spare bus permit holders depended on whether the vehicles answered the statutory definitions of tourist vehicle, stage carriage or contract carriage under the Motor Vehicles Act and the Central Motor Vehicles Rules. The Madras HC held that the authority had to examine that factual and legal distinction on merits and could not proceed on an assumption of liability merely because earlier writ petitions had been dismissed. The Court also accepted that the challenge was not barred by alternative remedy in the circumstances, given the alleged breach of natural justice and prolonged pendency. The impugned notices and demand orders were therefore unsustainable, though fresh proceedings could be taken after proper notice and hearing.

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Issues: Whether holders of spare bus permits could be treated as tour operators liable to service tax under the Finance Act, 1994, and whether the impugned show-cause notices and orders were sustainable when they did not examine the statutory distinction between a stage carriage, a tourist vehicle and a contract carriage.

Analysis: Liability to service tax depended on whether the petitioners' vehicles answered the definition of tourist vehicle under the Motor Vehicles Act, 1988 and the Central Motor Vehicles Rules, 1989. The prior Division Bench had permitted spare bus permit holders to raise this objection before the authority, and the authority was therefore bound to decide that factual and legal question on merits. Instead, the notices and orders proceeded on the assumption that the petitioners were liable merely because earlier writ petitions had been dismissed, without applying the relevant definitions under the Motor Vehicles Act or examining whether the spare buses were in truth tourist vehicles capable of being used as contract carriages. The Court also held that the challenge was not barred by alternative remedy in the circumstances, since violation of natural justice and the long pendency of the writ petitions justified judicial review.

Conclusion: The impugned notices and orders were unsustainable and liable to be set aside.

Final Conclusion: The writ petitions succeeded, the service tax demand orders were quashed, and the respondent was left free to initiate fresh proceedings by issuing a proper notice and granting an opportunity of hearing.

Ratio Decidendi: Where service tax liability turns on whether a vehicle falls within a statutory definition incorporated by reference, the authority must decide that issue on the relevant facts and cannot proceed on assumptions or a mechanically issued notice.

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